Unions and Growth

Sebastian Mallaby says some smart things in this column but he needs to think more carefully about thinking more carefully about empowering labor unions:

Market reengineering is also in order. The government should stop distorting markets by subsidizing housing finance through Fannie Mae and Freddie Mac, clinging to trade barriers, or offering tax deductions that encourage overspending on homes and health care. The tort system, an outrageously wasteful way to compensate victims and discipline firms, should be reformed. And, given the object lesson from the collapse of the Big Three carmakers, government should think carefully before empowering labor unions further.

The growth of U.S. government need not be an economic disaster. Sweden and Denmark combine large public sectors with fast growth in GDP per capita. But to get away with big government, you must have smart government. Once the financial crisis is behind us, this should be the guiding principle of the Obama years.

Now look over here and you’ll see that the United States, allegedly threatened by our unions, has a union density rate of 12 percent. Sweden, on which Mallaby says we ought to model ourselves, has a union density rate of 78 percent. In Denmark, it’s 80 percent. And of course it’s not just Sweden and Denmark. You see much the same thing across northern Europe — large public sectors, fast GDP growth, and high levels of unionization. In Finland, union density is 74.1 percent. In Norway, it’s 53 percent. And even in the relatively un-unionized Netherlands it’s 24.4 percent — more than double what we’ve got in the United States.


What I would say about car companies and unions is this. We had a period of time in the United States when prevailing labor law made it viable to organize private sector unions in the teeth of management opposition. So a bunch of firms were unionized at that time. Then we more-or-less closed the door on such unionization. And then after the door shut, new car plants were opened in anti-union jurisdictions. That obviously put the unionized firms at a disadvantage. But that’s different from saying that unionization is killing the car industry — cars are made and sold in Europe just fine. Meanwhile, in a capitalist system over the course of decades and decades it’s just inevitable that some sectors of the economy will rise and others will decline. Since we’ve made it so difficult to organize new unions, and since things change over time, we have disproportionate concentration of our private sector unions in the declining manufacturing sector. But that’s not unions causing the decline, it’s just things changing over time. The union-dominated movie and television production industries have become more central to the economy over the same time period. These things just happen. In a decent economy, though, we need to make sure that as new industries rise the workforce in those industries has a realistic shot at forming unions and bargaining collectively.